The Nexus Between Economic Growth and Passengers Air Travel Demand in Ethiopia :The Case of Ethiopian Airlines
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Date
2022-06
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Addis Ababa University
Abstract
Despite the fact that various studies have proved the connection of air transportation and economic activities, their dynamic short-run and long-run interactions and causality varies between countries and it remains complicated. So, the major goal of this study is to evaluate the nexus and direction of causation between economic growth and air travel demand (domestic and international) in Ethiopia by using ARDL model, pair-wise granger and modified Wald causality tests for the period 1991-2020. Furthermore, for the study period, the study looked at the short-run and long-run dynamic relationship between economic growth, passenger air travel demand, and selected variables (Consumer price index, international tourism receipts, foreign direct investment inflow, official exchange rate and education). Two distinct models were built in this study using air transport indicators, economic growth indicators, and selected factors. The relationship between domestic air travel demand, economic growth, and selected variables was examined in the first model, while the relationship between international air travel demand, economic growth, and selected variables was analyzed in the second model. The results of the ARDL-bound test shows a long-run co-integrating relationship between air travel demand (domestic and international) and economic growth in Ethiopia. The result of causality also shows that, for domestic air travel demand there exist bi-directional causality both in the short-run and long-run, and for international air travel demand, there exist short-run bidirectional causality and uni-directional causality from air travel demand to economic growth in the long-run. Furthermore, domestic air travel demand is only responsive to economic growth in the short term, while economic growth, foreign direct investment, the consumer price index, and international tourism receipts are all relevant in the long run. Economic growth, foreign direct investment, education, the consumer price index, international tourism receipts, and the official exchange rate all play a role in international air travel demand. Finally, the researcher recommended raising income, maintaining Ethiopian airlines' competitiveness by expanding bilateral and multilateral agreements, building airport infrastructure (increasing the number and quality of international airports in the country), and easing bureaucracy for foreign investors, increasing tourism sites in the country, and lowering consumer goods prices to improve Ethiopia's air travel demand performance.
Keywords: Air travel demand, Economic Growth, Short-run and Long-run dynamics, Direction of causality, ARDL Model, Bilateral and multilateral agreements, Airlines Competitiveness, easing bureaucracy.